Transaction flow

When a deal has been made, various steps have to be taken. This entire process, from order initiation to settlement, may be called the ‘transaction flow’. It consists of the following building blocks:

  • Negotiation process (in case of bilateral deal-making) / order initiation (in case of a trading system) (front office activity);
  • Deal-making, leading to an agreement, or order matching process, being the conclusion of a transaction (result of a front office initiative, requiring back office action);
  • Deal confirmation to counterparty of the contract (two-way) (back office activity);
  • Deal capture in the trade and risk management system of the market participant (operational control);
  • (Daily) reporting regarding the financial performance (profit/loss) (middle office activity);
  • (Daily) reporting regarding the risks (exposures), indicated by the value at risk, credit position and other parameters (middle office activity);
  • Collateralisation and/or margining (back office activity);
  • Deal settlement (i.e. effectuation of the agreement) (back office activity);
  • Invoicing (back office activity);
  • Payment(s) (back office activity).

Obviously, this is not per se all; potential related processes include the following:

  • Allocation process (expected volume) (back office activity);
  • Reconciliation process (checking from hindsight allocated volume versus actual delivery) (back office activity);
  • Nomination process (electronic message to book transport capacity) (back office activity);
  • Accounting (finance activity).